This matter is pending on the motion of the plaintiff chapter 7 trustee for partial summary judgment determining that the claim of Bank One, as amended, has been satisfied and paid in full from the proceeds of sale of a residence co-owned by the debtor and his nondebtor spouse, Judy Eldridge. The trustee seeks leave to pay Judy Eldridge the sum of $5,202.19, representing her undistributed share of the net proceeds of sale.

By his complaint in this adversary proceeding the trustee sought court approval pursuant to 11 U.S.C. § 363 to sell the estate's interest and the interest of the debtor's nondebtor spouse in their residence at 800 Westchester Drive, Lexington, Kentucky. Named as defendants in addition to the debtor and his spouse were Federal Home Loan Mortgage Company, Bank One, Lexington, the Kentucky Revenue Cabinet, and the Internal Revenue Service.

The debtor and his spouse filed answers consenting to the sale. By his answer the debtor claimed a homestead exemption of $5,000.

The defendant Federal Home Loan Mortgage Company did not file an answer, but the fact Federal Home Loan Bank held the first mortgage on the property and was owed $72,069.57 was undisputed.

Bank One, Lexington filed an answer and cross-claim asserting an indebtedness owed to it of $68,883.70 plus interest. The bank consented to the sale of the property. A dispute over the per diem interest rate owed to the bank was resolved when the principal and interest of the bank debt was paid from the proceeds of sale.

The answer and cross-claim of the Kentucky Revenue Cabinet indicated it was owed $80,406.94 secured by a notice of tax lien filed September 11, 1986 in the Fayette County Clerk's office.

The answer and cross-claim of the United States of America Internal Revenue Service alleged it was owed $78,820.48 secured by tax liens filed August 31, 1993 and February 14, 1994 in the Fayette County Clerk's office. These IRS tax liens were inferior to the mortgage of Bank One, Lexington, which was recorded May 15, 1991.

Following a hearing on May 17, 1995, an agreed order was entered between Bank One, Lexington and the Commonwealth of Kentucky Revenue Cabinet finding that the Revenue Cabinet's tax lien was prior and superior to the mortgage of Bank One only to the extent of $5,000. The order provided that from the proceeds of sale the mortgage of Federal Home Loan Mortgage Company was to be paid, then $5,000 to the Revenue Cabinet, then the mortgage indebtedness of Bank One, Lexington. The remainder of the sale proceeds were to be held by the trustee pending further orders of the court.

The residence was sold by the trustee at public auction for $165,000. From this sum and a real estate tax rebate of $16.31, or a total realization of $165,016.31 the trustee has made disbursements as follows:

Auctioneer $ 8,250.00

Federal Home Loan Bank 72,069.57

Kentucky Revenue Cabinet 5,000.00

Bank One 74,292.38

There remains on hand in the account of the trustee $5,404.37, of which $202.18 is allocable to the bankruptcy estate and $5,202.19 is allocable to the interest of the nondebtor co-owner Judy Eldridge in the real estate and the proceeds of sale.

Bank One, Lexington claims it is entitled to the entire balance of the proceeds of sale to satisfy postpetition attorney fees incurred primarily in resolving the controversy between the bank and the Commonwealth of Kentucky Revenue Cabinet that arose in the context of this adversary proceeding over the priority of their liens.

The bank's mortgage which was executed by the nondebtor spouse co-owner and the debtor secures the bank in the additional amount of reasonable attorneys' fees and costs incurred in judicial proceedings for the collection of the mortgage indebtedness. The court has examined the documentation of legal fees and costs in the total amount of $5,607.29 incurred by the bank postpetition and finds them to be reasonable. Accordingly, the motion of the trustee to pay the sum of $5,202.19 to the co-owner nondebtor spouse of the debtor shall be overruled. The balance of the funds held by the trustee representing the proceeds of sale of the residence of the debtor and his nondebtor spouse shall be ordered paid to Bank One, Lexington in conformity with the applicable and enforceable provision of the mortgage agreement executed by the parties. 11 U.S.C. § 506(b).

Dated:

By the court -

______________________________

JOE LEE, CHIEF JUDGE

Copies to:

William Montague, Jr., Esq.

Gregory D. Pavey, Esq.

Natalie S. Wilson, Esq.

William R. Erwin, Esq.

J. James Rogan, Esq.

Charles H. Keene, Esq.

Joseph L. Famularo, Esq.

James E. Stierle, Esq.

U.S. Trustee

f:\opinions\1996\95-5026.df

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

IN RE:

JOHN L. ELDRIDGE, JR. CASE NO. 95-50007

a/k/a J.L. Eldridge

a/k/a J.L. Eldridge, Jr.

DEBTOR

J. JAMES ROGAN, TRUSTEE PLAINTIFF

VS. ADVERSARY NO. 95-5026

JOHN L. ELDRIDGE, JR.; JUDY P.

ELDRIDGE; FEDERAL HOME MORTGAGE

CO.; BANK ONE, LEXINGTON; KENTUCKY

REVENUE CABINET; INTERNAL REVENUE

SERVICE DEFENDANTS

ORDER

In conformity with the memorandum opinion of the court this day entered, IT IS ORDERED that the court hereby overrules the motion of the plaintiff chapter 7 trustee for partial summary judgment determining that the claim of Bank One, as amended, has been satisfied and paid in full from the proceeds of sale of a residence co-owned by the debtor and his nondebtor spouse, Judy Eldridge. The court also overrules the motion of the trustee for an order authorizing him to pay Judy Eldridge the sum of $5,202.19, representing her undistributed share of the net proceeds of sale. The trustee is directed to pay the balance of the funds held by

him, representing proceeds of sale of the residence of the debtor and his nondebtor spouse, to Bank One, Lexington.